Transcript Chapter 8: Strategic Management
Management, 7e Schermerhorn
Prepared by Michael K. McCuddy Valparaiso University
John Wiley & Sons, Inc
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Chapter 8 Strategic Management Planning ahead—study questions – What are the foundations of strategic competitiveness?
– – What is the strategic management process?
What types of strategies are used by organizations?
– – How are strategies formulated?
What are current issues in strategy implementation?
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What are the foundations of strategic competitiveness?
Basic concepts of strategy: – Competitive advantage—operating in a successful way that is difficult for competitors to imitate.
– Sustainable competitive advantage— consistently dealing with market and environmental forces better than competitors.
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What are the foundations of strategic competitiveness?
Basic concepts of strategy: – Strategy—a comprehensive action plan providing long-term direction and guiding resource utilization to accomplish organizational goals with sustainable competitive advantage.
– Strategic intent—focusing all organizational energies on a unifying and compelling goal.
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What are the foundations of strategic competitiveness?
Basic concepts of strategy: – Strategic management—the process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage.
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What are the foundations of strategic competitiveness?
Strategic management goals – Formulate and implement strategies that yield long-term, sustainable competitive advantage.
– Create above-average returns for investors.
• Earning above-average returns depends in part on the organization’s environment.
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What are the foundations of strategic competitiveness?
Environments and competitive advantage – Monopoly • • Only one player and no competition Creates absolute competitive advantage – Oligopoly • Few players not directly competing against each other • Long-term competitive advantage in defined market segment.
– Hypercompetition • • Several players directly competing against each other Any competitive advantage is only temporary Schermerhorn - Chapter 8 8
What is the strategic management process?
Strategy formulation – The process of creating strategy.
– Involves assessing existing strategies, organization, and environment to develop new strategies and strategic plans capable of delivering future competitive advantage.
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What is the strategic management process?
The strategy formulation process (Drucker) • What is our business mission?
• Who are our customers?
• What do our customers consider value?
• What have been our results?
• What is our plan?
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What is the strategic management process?
Strategy implementation – The process of allocating resources and putting strategies into action.
– All organizational and management systems must be mobilized to support the accomplishment of strategies.
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What is the strategic management process?
Essential tasks for strategy implementation … – Identify organizational mission and objectives.
– Assess current performance vis-à-vis mission and objectives.
– Create strategic plans to accomplish purpose and objectives.
– Implement the strategic plans – Evaluate results; change strategic plans and/or implementation processes as necessary.
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What is the strategic management process?
Analysis of mission – – The reason for an organization’s existence.
Good mission statements identify: • Customers • • • Products and/or services Location Underlying philosophy – An important test of the mission is how well it serves the organization’s stakeholders Schermerhorn - Chapter 8 13
What is the strategic management process?
Analysis of values – Values are broad beliefs about what is or is not appropriate.
– Organizational culture reflects the dominant value system of the organization as a whole.
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What is the strategic management process?
Analysis of objectives – Operating objectives direct activities toward key and specific performance results.
– Typical operating objectives: • • • • • • • • Profitability Market share Human talent Financial health Cost efficiency Product quality Innovation Social responsibility Schermerhorn - Chapter 8 15
What is the strategic management process?
Analysis of organizational resources and capabilities – Assessing organizational
S
trengths and
W
eaknesses within SWOT analysis – Identifying core competencies • Technology • • • • Human resources Manufacturing approaches Management talent Financial strength Schermerhorn - Chapter 8 16
What is the strategic management process?
Analysis of industry and environment – Assessing
O
pportunities and
T
hreats within SWOT analysis – Assessment of actual and future environmental conditions • • Macro environment Industry environment – – Unattractive industry Attractive industry Schermerhorn - Chapter 8 17
What types of strategies are used by organizations?
Levels of strategy – Corporate strategy—directs the organization as a whole toward sustainable competitive advantage.
– Business strategy—sets the strategic direction for a single business unit or product line.
– Functional strategy—guides the use of resources to implement business strategy, focusing on activities within a specific area of operations.
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What types of strategies are used by organizations?
Growth and diversification strategies – Growth strategies—seek an increase in size and the expansion of current operations.
– Concentration strategies—growth occurs through expansion in the same business area.
– Diversification strategies—growth occurs through acquisition of or investment in new and/or different business areas.
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What types of strategies are used by organizations?
Restructuring and divestiture strategies – Liquidation—operations cease due to sale of assets or bankruptcy.
– Restructuring—changes in the scale and/or mix of operations to gain efficiency and improve performance.
– Divestiture—selling off parts of the organization to refocus on core competencies.
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What types of strategies are used by organizations?
Cooperative strategies – Strategic alliances—two or more organizations partner to pursue an area of mutual interest.
– Types of strategic alliances: • Outsourcing alliances • Supplier alliances • Distribution alliances Schermerhorn - Chapter 8 21
What types of strategies are used by organizations?
E-business strategies – The strategic use of the Internet to gain competitive advantage.
– Popular e-business strategies • Business-to-business (B2B) strategies • Business-to-customer (B2C) strategies Schermerhorn - Chapter 8 22
What types of strategies are used by organizations?
Web-based business models: – Brokerage model – Advertising model – Merchant model – Subscription model – Infomediary model – Community model Schermerhorn - Chapter 8 23
How are strategies formulated?
Opportunities for achieving sustainable competitive advantage: – Cost and quality – Knowledge and speed – Barriers to entry – Financial resources Schermerhorn - Chapter 8 24
How are strategies formulated?
Business-level strategy formulation – Focus on finding ways to do a better job of attracting customers within a given business or industry.
– Helpful planning tools in formulating business level strategies: • Porter’s generic strategies • Product life cycle Schermerhorn - Chapter 8 25
How are strategies formulated?
Porter’s generic strategies model – Business-level strategic decisions are driven by: • Competitive scope • Source of competitive advantage – Competitive scope and source of competitive advantage combine to generate four generic strategies.
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How are strategies formulated?
Porter’s generic strategies model – Generic strategies for gaining competitive advantage: • Differentiation strategy • Cost leadership strategy • Focused differentiation strategy • Focused cost leadership strategy Schermerhorn - Chapter 8 27
How are strategies formulated?
Product life cycle – A series of stages that a product or service goes through during the life of its marketability.
– Stages of the life cycle: • Introduction • Growth • Maturity • Decline Schermerhorn - Chapter 8 28
How are strategies formulated?
Product life cycle – Introduction and growth stages • Use differentiation and prospector strategies – Maturity stage • Use focus and/or cost leadership strategies – Decline stage • Use defender or analyzer strategies Schermerhorn - Chapter 8 29
How are strategies formulated?
Corporate-level strategy formulation – Key issue is the selection and refinement of the organization’s mix of businesses.
– Approaches to formulating business-level strategies: • Portfolio planning • Adaptive strategies Schermerhorn - Chapter 8 30
How are strategies formulated?
Portfolio planning approach – Designed to help managers decide on investing scarce organizational resources among competing business opportunities.
– Useful for multibusiness or multiproduct situations.
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How are strategies formulated?
BCG matrix – Ties strategy formulation to analysis of business opportunities according to … • Industry or market growth rate – Low versus high • Market share – Low versus high Schermerhorn - Chapter 8 32
How are strategies formulated?
BCG matrix—business conditions and related strategies: – Stars • • High share/high growth businesses Preferred strategy—growth – Question marks • Low share/high growth businesses • Preferred strategy—growth for promising question marks and restructuring or divestiture for others Schermerhorn - Chapter 8 33
How are strategies formulated?
BCG matrix—business conditions and related strategies: – Cash cows • • High share/low growth businesses Preferred strategy—stability or modest growth – Dogs • • Low share/low growth businesses Preferred strategy—retrenchment by divestiture Schermerhorn - Chapter 8 34
How are strategies formulated?
GE Business Screen … – Business strengths: • Market share, technological advantage, product quality, operating costs, and price competitiveness.
– Industry attractiveness: • Market size and growth, capital requirements, and competitive intensity.
– Combining business strength and industry attractiveness yields a matrix that identifies business units as: • Winners, question marks, average businesses, profit producers, or losers.
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How are strategies formulated?
Adaptive strategies – Miles and Snow model – Organizations should pursue product/market strategies that are congruent with their external environments.
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How are strategies formulated?
Types of adaptive strategies: – Prospector strategy • Appropriate in dynamic, high-potential environments – Defender strategy • Appropriate in stable or declining environments – Analyzer strategy • Following leading competitors in high-potential environments – Reactor strategy • Following competitors as a last resort regardless of environment Schermerhorn - Chapter 8 37
How are strategies formulated?
Incrementalism – Modest and incremental changes in strategy occur as managers learn from experience.
Emergent strategies – Develop progressively over time in the streams of decisions that managers make.
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What are current issues in strategy implementation?
Common strategic planning failures – Failures of substance • Inadequate attention to major strategic planning elements – Failures of process • Poor handling of strategy implementation – Lack of participation error – Goal displacement error Schermerhorn - Chapter 8 39
What are current issues in strategy implementation?
Guidelines for double-checking strategy – – Is the strategy consistent with your mission and values?
Is the strategy feasible, given strengths and weaknesses?
– – – – Is the strategy responsive to opportunities and threats?
Does the strategy offer a sustainable competitive advantage?
Is the risk in the strategy a “reasonable” risk?
Is the strategy flexible enough?
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What are current issues in strategy implementation?
Corporate governance – System of control and performance monitoring of top management.
– Done by boards of directors and other major stakeholder representatives.
– Increasing emphasis on corporate governance in contemporary businesses.
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What are current issues in strategy implementation?
Strategic leadership – Strategic management is a leadership responsibility.
– The capability to get people to successfully engage in the continuous change, refinement, and implementation of strategies.
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What are current issues in strategy implementation?
Critical tasks of strategic leadership … – Be a guardian of trade-offs.
– Create a sense of urgency.
– Ensure that everyone understands the strategy.
– Be a teacher.
– Be a great communicator.
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